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Smoot–Hawley Tariff Act

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Tariff Act of 1930
Great Seal of the United States
Long titleAn Act To provide revenue, to regulate commerce with foreign countries, to encourage the industries of the United States, to protect American labor, and for other purposes.
NicknamesSmoot-Hawley Tariff, Hawley-Smoot Tariff
Enacted bythe 71st United States Congress
EffectiveMarch 13, 1930
Citations
Public lawPub. L. 71–361
Statutes at Largech. 497, 46 Stat. 590
Legislative history
  • Introduced in the House of Representatives as H.R. 2667 by Willis C. Hawley (R-OR) on April or May 1929
  • Committee consideration by House Ways and Means, Senate Finance
  • Passed the House on May 28, 1929 (264-147)
  • Passed the Senate on March 24, 1930 (53-31)
  • Reported by the joint conference committee on June 9, 1930; agreed to by the Senate on June 13, 1930 (without division, after motion to recommit failed 42–44) and by the House on June 14, 1930 (222-153)
  • Signed into law by President Herbert Hoover on June 17, 1930

The Tariff Act of 1930 (codified at 19 U.S.C. ch. 4), otherwise known as the Smoot–Hawley Tariff or Hawley–Smoot Tariff,[1] was an act sponsored by Senator Reed Smoot and Representative Willis C. Hawley and signed into law on June 17, 1930. The act raised U.S. tariffs on over 20,000 imported goods to record levels.[2]

The dutiable tariff level (this does not include duty-free imports—see Tariff levels below) under the act was the second highest in the U.S. in 100 years, exceeded by a small margin by the Tariff of 1828.[3] The great majority of economists then and ever since view the Act, and the ensuing retaliatory tariffs by America's trading partners, as responsible for reducing American exports and imports by more than half.[4] The extent of Smoot-Hawley's negative effect on the Depression-era economy remains debated by economists. According to Ben Bernanke, "Economists still agree that Smoot-Hawley and the ensuing tariff wars were highly counterproductive and contributed to the depth and length of the global Depression."[5] Alfred E. Eckes argues, however, that the tariff had little effect on the severity of the Great Depression,[6] as does Douglas A. Irwin in The Review of Economics and Statistics: "Smoot-Hawley ... probably did not contribute significantly to the economic downturn.".[7]

Sponsors and legislative history

Willis C. Hawley (left) and Reed Smoot in April 1929, shortly before the Smoot-Hawley Tariff Act passed the House of Representatives.

In 1922, Congress had passed the Fordney–McCumber Tariff act, which had increased tariffs on foreign imports.

The League of Nations' World Economic Conference met at Geneva in 1927, concluding in its final report: "the time has come to put an end to tariffs, and to move in the opposite direction." Vast debts and reparations could only be repaid through gold, services or goods; but the only items available on that scale were goods. However, many of the delegates' governments did the opposite, starting in 1928 when France passed a new tariff law and quota system.[8]

By the late 1920s the economy of the United States had made exceptional gains in productivity due to electrification, which was a critical factor in mass production. Horses and mules had been replaced by motorcars, trucks and tractors. One-quarter to one-sixth of farmland previously devoted to feeding horses and mules was freed up, contributing to a surplus in farm produce. Although nominal and real wages had increased, they did not keep up with the productivity gains. As a result the ability to produce exceeded market demand, a condition that was variously termed overproduction and underconsumption. Senator Smoot contended that raising the tariff on imports would alleviate the overproduction problem; however, the U.S. had actually been running a trade account surplus, and although manufactured goods imports were rising, manufactured exports were rising even faster. Food exports had been falling and were in trade account deficit; however the value food imports were a little over half that of manufactured imports.[9]

As the global economy entered the first stages of the Great Depression in late 1929, the USA's main goal emerged to protect American jobs and farmers from foreign competition. Reed Smoot championed another tariff increase within the USA in 1929, which became the Smoot-Hawley Tariff Bill. In his memoirs, Smoot made it abundantly clear:

"The world is paying for its ruthless destruction of life and property in the World War and for its failure to adjust purchasing power to productive capacity during the industrial revolution of the decade following the war."[10]

Smoot was a Republican from Utah and chairman of the Senate Finance Committee. Willis C. Hawley, a Republican from Oregon, was chairman of the House Ways and Means Committee.

When campaigning for president during 1928, one of Herbert Hoover's promises to help beleaguered farmers had been to increase tariffs of agricultural products. Hoover won, and Republicans maintained comfortable majorities in the House and the Senate during 1928. Hoover then asked Congress for an increase of tariff rates for agricultural goods and a decrease of rates for industrial goods.

The House passed a version of the act in May 1929, increasing tariffs on agricultural and industrial goods alike. The House bill passed on a vote of 264 to 147, with 244 Republicans and 20 Democrats voting in favor of the bill.[11] The Senate debated its bill until March 1930, with many Senators trading votes based on their states' industries. The Senate bill passed on a vote of 44 to 42, with 39 Republicans and 5 Democrats voting in favor of the bill.[11] The conference committee then aligned the two versions, largely by moving to the greater House tariffs.[12] The House passed the conference bill on a vote of 222 to 153, with the support of 208 Republicans and 14 Democrats.[11]

Opponents

In May 1930, a petition was signed by 1,028 economists in the U.S. asking President Hoover to veto the legislation, organized by Paul Douglas, Irving Fisher, James TFG Wood, Frank Graham, Ernest Patterson, Henry Seager, Frank Taussig, and Clair Wilcox.[13][14] Automobile executive Henry Ford spent an evening at the White House trying to convince Hoover to veto the bill, calling it "an economic stupidity."[15] J. P. Morgan's chief executive Thomas W. Lamont said he "almost went down on [his] knees to beg Herbert Hoover to veto the asinine Hawley-Smoot tariff."[16]

Hoover opposed the bill and called it "vicious, extortionate, and obnoxious" because he felt it would undermine the commitment he had pledged to international cooperation. However, in spite of his opposition, Hoover yielded to influence from his own party and business leaders and signed the bill.[17] Hoover's fears were well founded. Canada and other countries raised their own tariffs in retaliation after the bill had become law.

Franklin D. Roosevelt spoke against the act while campaigning for president during 1932.[12]

Retaliation

Threats of retaliation by other countries began long before the bill was enacted into law in June 1930. As it passed the House of Representatives in May 1929, boycotts broke out and foreign governments moved to increase rates against American products, even though rates could be increased or decreased by the Senate or by the conference committee. By September 1929, Hoover's administration had received protest notes from 23 trading partners, but threats of retaliatory actions were ignored.[12]

In May 1930, Canada, the country's most loyal trading partner, retaliated by imposing new tariffs on 16 products that accounted altogether for around 30% of U.S. exports to Canada.[18] Canada later also forged closer economic links with the British Empire via the British Empire Economic Conference of 1932. France and Britain protested and developed new trade partners. Germany developed a system of autarky.

In 1932, with the depression only having worsened for workers and farmers despite Smoot and Hawley's promises of prosperity from a high tariff, the two lost their seats in the elections that year.[19]

Tariff levels

Historically, there has been confusion as to the actual tariff level imposed by the Smoot-Hawley Tariff. In the two volume series published by the U.S. Bureau of the Census entitled "The Historical Statistics of the United States, Colonial Times to 1970, Bicentennial Edition," tariff rates have been represented in two forms. On page 888, the first measure (series U211) is the "free and dutiable tariff rate" which is the tariff revenue divided by the dollar sum of both dutiable and non-dutiable imports. The second measure (series U212) is the "dutiable tariff rate" which is the tariff revenue divided by the dollar value of dutiable imports. The "dutiable tariff rate" peak of 1932 was 59.1%, second only to the 61.7% rate of 1830. However, in 1933, 63% of all imports were never taxed which the "dutiable tariff rate" does not reflect. The "free and dutiable rate" in 1929 was 13.5% and peaked under Smoot-Hawley in 1933 at 19.8% which is significantly below the 29.7% "free and dutiable rate" that the United States averaged from 1821 until 1900.[20]

Coincident economic events

At first, the tariff seemed to be a success. According to historian Robert Sobel, "Factory payrolls, construction contracts, and industrial production all increased sharply." However, larger economic problems loomed in the guise of weak banks. When the Creditanstalt of Austria failed in 1931, the global deficiencies of the Smoot-Hawley Tariff became apparent.[17]

U.S. imports decreased 66% from $4.4 billion (1929) to $1.5 billion (1933), and exports decreased 61% from $5.4 billion to $2.1 billion. GNP fell from $103.1 billion in 1929 to $75.8 billion in 1931 and bottomed out at $55.6 billion in 1933.[21] Imports from Europe decreased from a 1929 high of $1.3 billion to just $390 million during 1932, while U.S. exports to Europe decreased from $2.3 billion in 1929 to $784 million in 1932. Overall, world trade decreased by some 66% between 1929 and 1934.[22]

Using panel data estimates of export and import equations for 17 countries, Jakob B. Madsen (2002) estimated the effects of increasing tariff and non-tariff trade barriers on worldwide trade during the period 1929-1932. He concluded that real international trade contracted somewhere around 33% overall. His estimates of the impact of various factors included about 14% because of declining GNP in each country, 8% because of increases in tariff rates, 5% because of deflation-induced tariff increases, and 6% because of the imposition of non-tariff barriers.

The new tariff imposed an effective tax rate of 60% on more than 3,200 products and materials imported into the United States, quadrupling previous tariff rates on individual items, but raising the average tariff rate to 19.2%, in line with average rates of that day.

Unemployment was at 8% in 1930 when the Smoot–Hawley tariff was passed, but the new law failed to lower it. The rate jumped to 16% in 1931, and 25% in 1932–33.[23] There is some contention about whether this can necessarily be attributed to the tariff, however.[6][7] It was not until World War II, during which "the American economy expanded at an unprecedented rate",[24] that unemployment fell below 1930s levels.[25]

Imports during 1929 were only 4.2% of the United States' GNP and exports were only 5.0%. Monetarists, such as Milton Friedman, who emphasize the central role of the money supply in causing the depression, note that the Smoot-Hawley Act only had a contributory effect on the entire U.S. economy.[26]

End of the tariffs

The 1932 Democratic campaign platform pledged to lower tariffs. After winning the election, President Franklin Delano Roosevelt and the now-Democratic Congress passed Reciprocal Trade Agreements Act of 1934. This act allowed the President to negotiate tariff reductions on a bilateral basis, and also treated such a tariff agreement as regular legislation, requiring a majority, rather than as a treaty requiring a two-thirds majority. This was one of the core components of the trade negotiating framework that developed after World War II. The tit-for-tat responses of other countries were understood to have contributed to a sharp reduction of trade in the 1930s. After World War II this understanding supported a push towards multi-lateral trading agreements that would prevent a similar situations in the future. While the Bretton Woods Agreement of 1944 focused on foreign exchange and did not directly address tariffs, those involved wanted a similar framework for international trade. President Harry S. Truman launched this process in December 1945 with negotiations for the creation of the International Trade Organization (ITO). As it happened, separate negotiations on the General Agreement on Tariffs and Trade (GATT) moved more quickly, with an agreement signed in October 1947; in the end, the US never signed the ITO agreement. Adding a multilateral "most-favored-nation" component to that of reciprocity, the GATT served as a framework for the gradual reduction of tariffs over the subsequent half century.[27]

Post-World-War-II changes to the Smoot-Hawley tariffs reflected a general tendency of the United States to reduce its tariff levels unilaterally while its trading partners retained their high levels. The American Tariff League Study of 1951 compared the free and dutiable tariff rates of 43 countries. It found that only seven nations had a lower tariff level than the U.S. (5.1%), while eleven nations had free and dutiable tariff rates higher than the Smoot-Hawley peak of 19.8% including the United Kingdom (25.6%). The 43-country average was 14.4% which was 0.9% higher than the U.S. level of 1929 demonstrating that few nations were reciprocating in reducing their levels as the U.S. reduced its own.[28]

Presence in modern political dialogue

In the discussion leading up to the passage of the North American Free Trade Agreement (NAFTA) then-Vice President Al Gore mentioned the Smoot-Hawley tariff as a response to NAFTA objections voiced by Ross Perot during a debate in 1993 they had on The Larry King Show. He gave Perot a framed picture of Smoot and Hawley shaking hands after its passage.[12]

The act has been compared to the 2010 Foreign Account Tax Compliance Act (FATCA), with Andrew Quinlan from the Center for Freedom and Prosperity calling FATCA "the worst economic idea to come out of Congress since Smoot-Hawley".[29]

The Smoot–Hawley Tariff Act is referenced in multiple films, including the 1986 comedy film Ferris Bueller's Day Off.[30]

See also

Notes

  1. ^ ch. 497, 46 Stat. 590, June 17, 1930, see 19 U.S.C. § 1654
  2. ^ Taussig (1931)
  3. ^ WWS 543: Class notes, 2/17/10, Paul Krugman, February 16, 2010, Presentation, slide 4
  4. ^ Alfred E. Eckes, Jr., Opening America's Market: U.S. Foreign Trade Policy Since 1776 (University of North Carolina Press, 1995, p. 100-3)
  5. ^ "FRB: Speech--Bernanke, Monetary Policy and the Global Economy--March 25, 2013".
  6. ^ a b Eckes, p. 113
  7. ^ a b Douglas A. Irwin, "The Smoot-Hawley Tariff: A Quantitative Assessment", The Review of Economics and Statistics, Vol. 80, No.2, The MIT Press, May, 1998, p.332-333.
  8. ^ The War: the root and remedy, George Peel, 1941
  9. ^ Beaudreau, Bernard C. (1996). Mass Production, the Stock Market Crash and the Great Depression. New York, Lincoln, Shanghi: Authors Choice Press.
  10. ^ Merill, Milton (1990), Reed Smoot: Apostle in Politics, Logan, UT: Utah State Press, p. 340, ISBN 0-87421-127-1.
  11. ^ a b c Irwin, Douglas A.; Randall S. Kroszner (December 1996). "Log-Rolling and Economic Interests in the Passage of the Smoot-Hawley Tariff" (PDF). Carnegie-Rochester Conference Series on Public Policy. 45: 6. doi:10.1016/s0167-2231(96)00023-1. Retrieved 17 January 2011.
  12. ^ a b c d "The Battle of Smoot–Hawley", The Economist, December 18, 2008.
  13. ^ "1,028 Economists Ask Hoover To Veto Pending Tariff Bill": Professors in 179 Colleges and Other Leaders Assail Rise in Rates as Harmful to Country and Sure to Bring Reprisals" (PDF), The New York Times, May 5, 1930.
  14. ^ "Economists Against Smoot–Hawley", Econ Journal Watch, September 2007.
  15. ^ "Shades of Smoot–Hawley", Time, October 7, 1985.
  16. ^ Chernow, Ron (1990), The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance, New York: Atlantic Monthly Press, p. 323, ISBN 0-87113-338-5.
  17. ^ a b Sobel, Robert (1972), The Age of Giant Corporations: A Microeconomic History of American Business, 1914-1970, Westport: Greenwood Press, pp. 87–88, ISBN 0-8371-6404-4.
  18. ^ Brown, Wilson B.; Hogendorn, Jan S. (2000), International Economics: In the Age of Globalization, Toronto: University of Toronto Press, p. 246, ISBN 1-55111-261-2 {{citation}}: Unknown parameter |lastauthoramp= ignored (|name-list-style= suggested) (help).
  19. ^ Rhodri Jeffreys-Jones (1997). Changing Differences: Women and the Shaping of American Foreign Policy, 1917-1994. Rutgers University Press. p. 48.
  20. ^ The Historical Statistics of the United States, Colonial Times to 1970, Bicentennial Edition. Vol. Part 2. U.S. Census Bureau. p. 888. Table: Series U207-212 (Part 2 ZIP file: file named CT1970p2-08.pdf).
  21. ^ Burewau of the Census, Historical Statistics series F-1
  22. ^ "Smoot–Hawley Tariff", U.S. Department of State, June 21, 2003, ISBN 0-8240-5367-2.
  23. ^ U.S. Bureau of the Census; Social Science Research Council (1960), Historical Statistics of the United States, Colonial Times to 1957, Washington, DC: Govt. Print. Office, p. 70.
  24. ^ Tassava, Christopher. "The American Economy during World War II". EH.Net Encyclopedia, edited by Robert Whaples. February 10, 2008.
  25. ^ Bureau of Labor Statistics, "Graph of U.S. Unemployment Rate, 1930-1945", HERB: Resources for Teachers, retrieved April 24, 2015.
  26. ^ Milton Friedman and Anna Jacobson Schwartz, A monetary history of the United States, 1867-1960 (1963) p. 342
  27. ^ "Understand the WTO: The GATT years: from Havana to Marrakesh", World Trade Organisation.
  28. ^ Lloyd, Lewis E. Tariffs: The Case for Protection. The Devin-Adair Co., 1955, Appendix, Table VI, p. 188-189
  29. ^ "Senator Rand Paul Introduces Bill to Repeal FATCA! - lets-get-republican-presidential-candidates-uon-the-recordu-for-fatca-repeal - Repeal FATCA".
  30. ^ "Ferris Bueller's Day Off (1986) – Memorable Quotes", Internet Movie Database.

References

  • Archibald, Robert B.; =Feldman, David H. (1998), "Investment During the Great Depression: Uncertainty and the Role of the Smoot–Hawley Tariff", Southern Economic Journal, 64 (4): 857–879, doi:10.2307/1061208, JSTOR 1061208{{citation}}: CS1 maint: extra punctuation (link).
  • Crucini, Mario J. (1994), "Sources of variation in real tariff rates: The United States 1900 to 1940", American Economic Review, 84 (3): 346–353, JSTOR 2118081.
  • Crucini, Mario J.; Kahn, James (1996), "Tariffs and Aggregate Economic Activity: Lessons from the Great Depression", Journal of Monetary Economics, 38 (3): 427–467, doi:10.1016/S0304-3932(96)01298-6.
  • Eckes, Alfred (1995), Opening America's Market: U.S. Foreign Trade Policy since 1776, Chapel Hill: University of North Carolina Press, ISBN 0-585-02905-9.
  • Eichengreen, Barry (1989), "The Political Economy of the Smoot–Hawley Tariff", Research in Economic History, 12: 1–43.
  • Irwin, Douglas (1998), "The Smoot–Hawley Tariff: A Quantitative Assessment", Review of Economics and Statistics, 80 (2): 326–334, doi:10.1162/003465398557410.
  • Irwin, Douglas A. Peddling Protectionism: Smoot–Hawley and the Great Depression (Princeton University Press; 2011) 244 pages
  • Kaplan, Edward S. (1996), American Trade Policy: 1923–1995, London: Greenwood Press, ISBN 0-313-29480-1.
  • Kottman, Richard N. (1975), "Herbert Hoover and the Smoot–Hawley Tariff: Canada, A Case Study", Journal of American History, 62 (3): 609–635, doi:10.2307/2936217, JSTOR 2936217.
  • Koyama, Kumiko (2009), "The Passage of the Smoot–Hawley Tariff Act: Why Did the President Sign the Bill?", Journal of Policy History, 21 (2): 163–186, doi:10.1017/S0898030609090071.
  • Madsen, Jakob B. (2001), "Trade Barriers and the Collapse of World Trade during the Great Depression", Southern Economic Journal, 67 (4): 848–868, doi:10.2307/1061574, JSTOR 1061574.
  • McDonald, Judith; =O'Brien, Anthony Patrick; Callahan, Colleen (1997), "Trade Wars: Canada's Reaction to the Smoot–Hawley Tariff", Journal of Economic History, 57 (4): 802–826, doi:10.1017/S0022050700019549, JSTOR 2951161{{citation}}: CS1 maint: extra punctuation (link).
  • Merill, Milton (1990), Reed Smoot: Apostle in Politics, Logan, UT: Utah State Press, ISBN 0-87421-127-1.
  • O'Brien, Anthony, "Smoot–Hawley Tariff", EH Encyclopedia.
  • Pastor, Robert (1980), Congress and the Politics of U.S. Foreign Economic Policy, 1929–1976, Berkeley: University of California Press, ISBN 0-520-03904-1.
  • Schattschneider, E. E. (1935), Politics, Pressures and the Tariff, New York: Prentice-Hall → Classic study of passage of Hawley–Smoot tariff.
  • Taussig, F. W. (1931), The Tariff History of the United States (PDF) (8th ed.), New York: G.P. Putnam's Sons.
  • Temin, Peter (1989), Lessons from the Great Depression, Cambridge, MA: MIT Press, ISBN 0-262-20073-2.
  • Turney, Elaine C. Prange; Northrup, Cynthia Clark (2003), Tariffs and Trade in U.S. History: An Encyclopedia.
  • Irwin, Douglas (2011), Peddling Protectionism: Smoot–Hawley and the Great Depression, Princeton University Press, p. 256, ISBN 978-0-691-15032-1.
  • Book Review The Great Depression; Blame game; Was legislation sponsored by two Republicans to blame? Mar 24th 2011 | from The Economist print edition
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